Sony Buying Stake in Peanuts

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Sony Music Entertainment (Japan) (SMEJ) is buying a major but non-controlling stake in Peanuts, acquiring 49% of DHX Media’s 80% ownership for $185 million. Once the deal is complete, DHX will own 41% of Peanuts, Sony will own 39%; the family of Charles M. Schulz continues to control the remaining 20%.

The deal comes a year after DHX paid $345 million to buy Iconix’s 80% ownership of Peanuts along with the Strawberry Shortcake brand (Inside Licensing May 10, 2017). The price of the stake being sold to Sony is a 25% premium to what DHX paid for Peanuts, said Michael Donovan, Executive Chairman of DHX, in discussing the deal – which is expected to close by June 30 – as the company released its Q3 financial results. He said proceeds from the sale would be used to pay down DHX’s debt.

The pact also comes as DHX nears the end of a months-long strategic review that began last September, which weighed, among other things, a sale of the company and its assets. DHX had about $992.9 million in long-term debt payments as March 31, the bulk of which ($782 million) is due after fiscal 2022, which ends Sept. 30, 2022.

As part of the agreement, DHX and SMEJ also extended the licensing and syndication pact with SMEJ’s consumer products group, Sony Creative Products, which has represented Peanuts in Japan since 2010. Despite the sale of part of its stake in Peanuts, DHX remains “100% in control” of the brand along with continued creative input from the Schulz family, Donovan said.

Japan generates about 40% of Peanuts annual revenue and SMEJ’s strategy there will be used as a “template” for other regions, especially China, Donovan told analysts. While the Peanuts brand has “prominence” in China, the financial return there has been “de minimis,” Donovan said.

“We see China as a game-changer” for Peanuts and DHX’s other brands,” Donovan said. But “Japan is the template for how the brand can and should roll out in the rest of the world, most critically in Asia.”

DHX purchased the interest in Peanuts with a goal of doubling its consumer products business. The brand had registered $1.5 billion in retail sales in 2015, down from $2 billion when Iconix purchased it from E.W. Scripts for $175 million in 2010. Iconix’s sale of Peanuts also was prompted by a need to pay down debt, which stood at $1.2 billion at the time.

Peanuts has licensing programs in 196 countries, with more than 1,100 licensees.

Under DHX, some licensing for Peanuts has shifted from outside agencies to DHX affiliate CPLG.

SMEJ is in midst of signing licensing agreements in Japan that will help mark Peanuts’ 50th anniversary this year, Donovan said.

“In terms of bringing that brand forward for the next 20 years, Sony has shown the way,” Donovan said.

DHX’s acquisition also added more than 200 hours of Peanuts content to DHX’s library of 450 titles. Peanuts brand received silver screen treatment with Twentieth Century Fox and Blue Sky Studios’ The Peanuts Movie, which grossed nearly $250 globally in 2015.

DHX reported an $8 million net loss in Q3 ended March 31, reversing a $7.5 million profit a year earlier as it incurred $4.5 million in development and other expenses. Revenue rose 48.7% to $116 million, due largely to a gain (to $34.1 million from $7 million a year earlier) in consumer products revenue from properties the company owns. The vast majority of the revenue ($31 million) was from Peanuts.